#28 – Summer Travel, Disney, Apples, Inflation, Disinflation, and Participation vs. Perfection

Jeff Lloyd [00:00:54]:
Thanks for having me back on the show. Wes good to be here.

Wes Moss [00:00:57]:
So I’m in the great north. So we’re doing this. I’ve got you on a screen. So I think we’re in real time. So I’m up north, you’re in Atlanta, and we’ve got a lot to talk about today. This is, I don’t know where you want to start, but let me give you the, let me give you the headline topics of where I think we can go today. One, travel is booming, so if you’re one of the over 3 million people who passed through TSA screening for the Independence Day holiday, it was actually the 7th. Jeff Lloyd that was the biggest day.

Wes Moss [00:01:28]:
I guess that was the Sunday, last Sunday. People returning home, just a madhouse in every airport you can imagine. The Fed is getting what I was writing earlier this week, I was writing something and I thought to myself, because I think it was last Wednesday, Jerome Powell came out and was saying that maybe rates are, they’re starting to acknowledge that rates can’t stay this high for forever. And I wrote that the Fed was getting itchy after last Thursday’s CPI inflation report. I changed that to the Fed is getting really itchy. They’re really starting to worry about where rates are. And it looks like at least the market is saying rates are going to head lower, certainly by the end of the year or with, with a high probability by the end of the year. Investing.

Wes Moss [00:02:14]:
Jeff Lloyd I know that you’ve taught your kids how to ride a bike. I’ve taught at least four kids how to ride a bike. And how that relates back to the market. We’re gonna talk that Buffett don’t bet against America. I’ve got some information around hip replacements and knee replacements. I don’t know if that is an exciting topic for you, but that’s on the radar today, housing prices and that this kind of goes back to inflation, but it’s a separate. It’s a big separate category. Housing prices, higher inventory, but prices still have not come down in housing.

Wes Moss [00:02:48]:
And then friends keep you alive. So hopefully you and I are good friends, and maybe you can keep me alive. And those are all the topics I have today. And first half. So the first half of the year, certainly in the books that ended the end of June, we can give a quick first half update as well. I’ve got one more bullet point here, Jeff Lloyd, that I didn’t get to. I wrote this earlier in the week, but I didn’t flush it out. Wind turbines and bearing balls.

Jeff Lloyd [00:03:19]:
Wind turbines and what?

Wes Moss [00:03:21]:
And bearing balls.

Jeff Lloyd [00:03:23]:
Bearing balls.

Wes Moss [00:03:24]:
And I don’t have anything in it. There’s a lot of economics behind this. But I was talking to a dad, and I’ve done a lot of sports, travel. You’ve done a lot this year. I’ve done a lot. One of the dads on our team, manufacturers, he’s a giant global company. I think they’re based in Sweden, and they make ball bearings. But when I think of a ball bearing, I think of just the little tiny ball bearings that spin around.

Wes Moss [00:03:50]:
Right. That’s what you think of.

Jeff Lloyd [00:03:52]:
I don’t think of going with a huge wind turbine.

Wes Moss [00:03:56]:
Imagine a 1 meter giant chromium steel ball bearing that is made for one reason, and that’s for a wind turbine.

Jeff Lloyd [00:04:07]:
To be able to rotate. Yeah. Produce energy by trying.

Wes Moss [00:04:14]:
These are like $150 to $250,000 single ball bearings, but they’re. They’re for wind turbine. So the. The one thing I did learn about that is that the price of one of those giant wind towers that we see for, obviously for wind energy is essentially a million bucks per kilowatt hour. So if you have a seven kilowatt hour turbine, which are the really big ones, it’s about $7 million to put up one. One of those wind turbines.

Jeff Lloyd [00:04:41]:
7 million for one turbine?

Wes Moss [00:04:43]:
Just one turbine.

Jeff Lloyd [00:04:44]:
And every time I see a wind turbine, it’s not just one alone. It is. It is multiple. I mean, it is. It’s a wind farm. It’s a wind farm. That’s right.

Wes Moss [00:04:55]:
So you’re gonna. You’re gonna. These things are anywhere from two or 3 million for the small ones up to call it 7 million /kw well, 7 million for the really big ones. And just imagine the engineering that has to go into just the thing that allows it to spin. Kind of fascinating. So that. That’s just so, you know, that’s all I’ve got on wind turbines, but that’s as much as I flushed it out. But I was very interested in that.

Wes Moss [00:05:20]:
I thought it was kind of interesting.

Jeff Lloyd [00:05:22]:
Well, it sounds like we have a lot to cover on the show today. And I guess since we were just talking about how expensive wind turbines were being, 7 million apiece, one of the biggest headlines of the week, the month, the year, inflation, we talk about it all the time. I think we should just start there.

Wes Moss [00:05:43]:
Okay, so this was fascinating. And the headline here is that we, as inflation, is cooling, but we’ve actually seen def, we saw deflation for one month. When was the last time we heard that word deflation? Now, we’re still year over year at this 3% level, but that’s down from 3.3%. So remember the report we just got this week in July for June, compared to May, May of 2024 was 3.3% year over year inflation. CPA this is the consumer price index inflation report. Now, the latest report, it’s only 3%, so it’s gone down pretty significantly. But month over month, it’s the first time we’ve seen a negative print in since this whole inflation bubbling up has really started. So it’s just a 10th of a percent lower month over month.

Wes Moss [00:06:36]:
So technically, we had a little bit of deflation, not just the cooling of inflation. And that is the first time we’ve had that for a very long time. Where are we seeing it? We’ll go through some of the numbers. We’ve seen lower energy prices, so lower gas prices, food, I would call that flat to lower in a lot of cases. Still expensive to more and more expensive to eat out at restaurants, but food at home has really calmed down. Those inflation numbers look good. And then housing still remains sticky year over year. That number is still pretty high, over 5% increase in prices when it comes to housing in general, owners equivalent rent.

Wes Moss [00:07:18]:
But the month over month number wasn’t all that bad. It was just a third of a percent. So that also shows a little bit of hope that we can see some cooling when it comes to housing prices. To me, this is the first time that the Federal Reserve can look at each other at one of those exciting meetings that they have and say, guys, I think this inflation thing that we were trying to get a hold of is getting to the point where we can take our foot off the brake pedal and maybe even lower interest rates. And that is going to be, that’s a first. Remember, we came into this year of 2024, and there was this great expectation that we’d see lots of rate cuts, something like four, five, six, maybe even seven rate cuts in 2024. Then the retraction in inflation took a pretty big pause, and we saw some even higher inflation prints earlier in the year. The market essentially looked around and said, well, maybe we’re going to get zero.

Wes Moss [00:08:17]:
We’ve settled here on the show that we may have no interest rate decreases or cuts for 2024, but because of the number that we just saw this week, I think they’re back on the table. And you can look at Fed fund futures that we’ll talk about in just a second that are showing what the market is expecting as far as interest rate cuts in September and then. And then at the end of this year.

Jeff Lloyd [00:08:42]:
Yeah, so what I’ve been seeing the day before the inflation report came out, there was about a 70% chance of a Fed cut at the September meeting. Report came out on Thursday. That probability shot up to about 90% chance of a Fed cut at the September meeting.

Wes Moss [00:09:01]:
So this is just good for Americans to see that something that the necessities, energy, food, shelter, two of those three categories are tame. One is lower. Energy is lower by three or 4% year over year. And, and then food at home, or at least food in general. The full category is up to only a little over 2% year over year. And we’ve seen some of the categories actually come down pretty significantly. I love going over the detailed inflation numbers where you can see what’s rising and what’s falling. Apples down 12% year over year.

Wes Moss [00:09:37]:
Jeff Lloyd that is the biggest decrease I’ve seen. And then, ironically, frozen non carbonated juices and drinks up 20% year over year. Any idea how you could have two giant categories of essentially fruit going in completely different directions?

Jeff Lloyd [00:09:57]:
I have really no rhyme or reason for that. Does that mean apple prices are down 10% and apple juice concentrate is up 20? I can’t really explain.

Wes Moss [00:10:11]:
I’m not an expert on frozen juice non carbonated from concentrate. I am an amateur apple lover. So I’m going to say I’ve got a little bit of knowledge in one of these areas. I think if we really take a look at what’s happening in juice concentrate, again, up 20%, which is kind of a massive number. A lot of that is orange juice. And it’s. We’ve had a really. We’ve had.

Wes Moss [00:10:34]:
We’ve been. It’s been a really bad year for farming oranges. There. There have been hurricanes. So if you think about the hot climate where you grow oranges, it’s been ravaged by weather and it’s also been ravaged by some sort of orange crop disease. It’s called citrus greening disease. Huang Long bing is what it’s called, but I guess translated that citrus greening disease. And so oranges have been hit and apples, on the contrary, have really had a bumper year because I guess where apples are grown, which is in cooler climates, it’s been really good conditions.

Wes Moss [00:11:18]:
So you’ve seen huge apple production from China, which is the largest grower of apples in the world, then the United States. And then number three on the list is Poland.

Jeff Lloyd [00:11:32]:
I would not have seen Poland coming for the apple train. I did not see that.

Wes Moss [00:11:38]:
So you put all of this together. So think of it this way. We’ve got, the rate of inflation is getting better, which we’ve really looked for for the last couple of years now, 3% now versus 3.3% as of last month. We actually saw a tiny, tiny decrease in prices month over month. So that’s good news. Shelter, still the fly in the soup shelter, up 5.2% year over year, but only up 0.3 month over month. So that’s a good sign that we’re seeing the rate there for, at least for shelter, I’d say cooling as well. Food at home looking closer and closer to the flatline, food, the food at home index only rose, call it 1% or 1.1%.

Wes Moss [00:12:20]:
Over the past twelve months. The index for meats, poultry, fish, eggs rose about 2.5%. Its food away from home where were still having a little bit of trouble. Thats something we can control because we dont have to go out to restaurants. Thats up 4% year over year. Gas is cheaper. Food is flat. Housing still, I think getting still difficult.

Wes Moss [00:12:43]:
If you don’t already own a home and you’re a home buyer, and if you’re not one of the many Americans that already have a house and golden handcuffed mortgages that are low. But in general, this is a very, very constructive positive report. Bottom line here, inflation is getting better. And the Fed already before the inflation report, which was Thursday morning, Jerome Pell, earlier in the week was talking about how he was recognizing that he can’t keep rates this high this long if the unemployment rate continues to go up. Remember, we’ve continued to climb little by little every month. Now we’ve got an unemployment rate that’s over 4% up from, call it 3.5%. It keeps ticking higher and the Fed is trying to get inflation down. But they knew it was going to put some pressure on the labor market and that’s what we’ve seen.

Wes Moss [00:13:33]:
Inflation has gone lower, unemployment has gone higher still, I would say relatively in check, but with Powell already acknowledging that he can take his foot off the brakes and the inflation report that we just saw, you mentioned this in the first segment, huge change in the expectations of where rates are going to go for next year or in their next meeting in September. What are the probabilities at this point?

Jeff Lloyd [00:13:59]:
Well, before the inflation print, it was about a 70% probability of a rate hike at the September meeting one day later. Rate cut, rate cut, rate cut. Yes.

Wes Moss [00:14:11]:
I mean, you’re just right there in the Fed loving to raise interest rates. Jeff Floyd, you must already own a house.

Jeff Lloyd [00:14:17]:
We’re ready for some rate cuts. But after the report came out, the probability went up to about 90%.

Wes Moss [00:14:25]:
All right. And then if you look out, and I was looking at what the market’s expectations are for by the end of the year, not just the September meeting, but it’s showing a 42% chance that rates would be in the four, seven, five to five range. That’s about a half a percent or even three quarters of a percent lower than where we are today, and another 45% chance that would be in the category even lower than that, in the 4.5% range. So I look at that to say that there’s essentially, there’s an 87% chance that we will see multiple quarter percent rate cuts before the end of the year or by December. That’s a big deal, because imagine for some, I’m thinking that the magic number, and there’s no perfect number here, but with mortgage rates and in the seven range, I think that if you get the, just a 1% lower or even, let’s call it 1.1, and we get down to 5.9, I think that makes a big difference. I think visually, mentally, people have been struggling with higher rates means higher payments. But now you’ve been waiting and waiting, and all of a sudden you go from over seven to under six. If we get there, I think you could see a whole lot of housing activity where people kind of say, all right, it’s not like it was in 2020, but I can go out and I can go out and afford a mortgage at this point.

Wes Moss [00:15:53]:
So I could see it really spurring some real activity.

Jeff Lloyd [00:15:55]:
Yeah, I think people will know that rates aren’t going back to effectively zero and we’re probably not going to be in a sub 3%, 30 year mortgage rate. But, yeah, a little relief coming off 7%, get it in that five range. I think you’re right.

Wes Moss [00:16:12]:
And we’ll talk about that because inventories have gone up and yet housing prices have still maintained. And there’s some dynamics there. I want to talk about more money matters straight ahead. If you’ve ever done a Jane Fonda workout or if you remember as a kid rocky running the steps, and if Michael Keaton is still mister mom to you, then guess what? It’s officially time to do some retirement planning. It’s Wes moss from money matters. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@yourwealth.com. dot that’s your, yourwealth.com.

Wes Moss [00:16:56]:
we did a show a couple months ago that looked at what happens to markets when you hit an all time high. And at the time, this was what, two months ago or a month?

Jeff Lloyd [00:17:06]:
I think it was about six weeks ago.

Wes Moss [00:17:09]:
Call it six weeks ago. We had hit 25 new all time highs now. And we said, look, that’s a scary time to be investing because you think, wait a minute, the market’s already up. I don’t want to be invested. That’s the last thing I want to do is buy into a market that’s already done. Well, it doesn’t help me unless I’ve already been invested. So you say you take pause mentally.

Jeff Lloyd [00:17:30]:
Yeah, we got a lot of questions or emails. And you would think when you see a headline that says stock market at all time high, that’s a good thing. We applaud that headline. But for whatever reason, it could give some people maybe a sense of fear, of, oh, my goodness, the market’s at an all time high. Is now the time to sell?

Wes Moss [00:17:54]:
Time to get out. It’s time to sell. It’s just to sell when things are high, not buy. And that was called six weeks ago. Here we are today. Now we’re getting close to, we’re at 37 almost. We’re almost at 40. New all time highs in 2024.

Wes Moss [00:18:11]:
So the market has continued to make new highs. Bump through the ceiling. Continue and bump through the ceiling. Now. It hasn’t done it in dramatic fashion. It’s been a lot of these, just a 10th higher, two tenths higher. So it’s just ever so slightly made these new highs. But the S and P 500 has had a really good year, up around 17% in 2024.

Wes Moss [00:18:35]:
And the question is, what happens, though, once markets hit all time high? And I think this is a good reminder. You go back decade to decade, go back to the 1950s. Of that decade, we saw 137 all time highs. In the sixties, we saw 218 all time highs. In the nineties, we saw 310 all time highs during that decade. When you hear that the market just plowed new ground, made a new high, you think, wow, that’s got to be a very rare occurrence. It’s really not all that rare. So if you go back since 1950, we’ve seen more than 1250 all time highs.

Wes Moss [00:19:20]:
That averages out to more than 16 new highs on average in any given year. We’ve had some bad decades too, right? The decade of the two thousands where we had the.com bubble. Then with the great financial crisis, subprime mortgage. That decade was really challenging. We only made 13 new all time highs, but in the 2010s we made 242. We continue to plow new ground here in 2024. So it hasn’t been, it’s more common than people probably think. Number one and investing post or once we’ve already hit a new all time high.

Wes Moss [00:19:57]:
And the last couple I don’t like to use, I don’t love looking at smaller periods of time, but if you think about it over the last month or two, if you had gotten out of this market, you would have missed more than a dozen new all time highs. So it really reinforces the concept that we want to be invested even during really good times because there may be some real momentum there. So investing post or after an all time high, it’s just not nearly as bad as investors might think. And we’ve got some numbers behind this as well. I would also say, remember that just to get to an all time high, a lot of things have to go right. Jeff Lloyd and we’ll talk about we are in an election year, we know there’s an awful lot of distractions that go with that and it polarizes folks. It makes people nervous. But even though that is something that I know that Americans are nervous about and scared about, it’s a big distraction.

Wes Moss [00:20:58]:
One, two, we’ve had difficult inflation over the last couple of years. We’re still only four years really through since COVID had originally hit the world. So we’ve gone through a lot. And it makes for this environment of we’re almost battle worn a little bit as investors. So we feel as though things aren’t all that great. Yet here we are in a positive GDP economy still growing. We have an unemployment rate that even though it’s risen, it’s still just barely above 4%. And we’ve seen inflation cooling.

Wes Moss [00:21:32]:
And you put all of that together, it’s been a recipe for a Goldilocks economy in a pretty darn good equity market. So if you think about once you get to an all time high, a lot of things have to go right, like they’ve done over the last couple of years. Yeah.

Jeff Lloyd [00:21:50]:
And maybe why some investors could feel a little bit worn down last year. 20230. All time highs the year before, only one. So we didn’t really get back to 2022 levels until this year. So market a new all time high.

Wes Moss [00:22:10]:
I think that’s a great point. These all time high years are very streaky. Right. We had a ton of all time highs after we recovered from the great financial crisis. We had 53 in 2014. We had 62 in 2017. We had 19 in 2018. So we had this nice stretch of years where we were hitting new highs then post Covid, 2022.

Wes Moss [00:22:32]:
After a little bit of recovery. After Covid, only one all time high, and then 20230. So you had a two year period where markets really did not plow new ground, and they’re doing that here in 2024. How about this? And this was kind of just because we are now past Independence Day. We’re in the dog days of summer. We’re halfway through July. But it was a really nice reminder, again, 248th birthday here in the United States, July 4, two weeks ago. And Warren Buffett is out, reflecting on kind of the power of the american tailwind.

Wes Moss [00:23:11]:
He calls it the american tailwind. He’s 93. He’s reflecting. He’s witnessed, I think, 16 different presidential terms or 16 different us presidents, and talks about the american tailwind. Now, Berkshire Hathaway, it’s not a trillion dollar company yet, but it’s approaching that. It’s a 800, almost $900 billion company. But I love the way he talks about the United States in calling it essentially an incubator. There has been no incubator for unleashing human potential like the incubator that is the United States of America.

Wes Moss [00:23:49]:
Can we talk a little bit about America and the tailwind that is America and what happened with Warren Buffett when he was eleven years old?

Jeff Lloyd [00:23:57]:
I would love to do that and just talk us through the history of Berkshire and how it started.

Wes Moss [00:24:04]:
Buffett’s journey. He started when he was. His investment journey started. He was eleven. It was 1942. He bought his first stock. He used all his savings. Talk about starting early.

Wes Moss [00:24:14]:
That’s like, that’s the equivalent of riding one of those strider bikes. The next thing you know, you pop on a regular bike and you can ride automatically. Back then, the Dow Jones was at 99. 99, not 9900, not 99,099 back in 1942. So he remarks, and we’re not there yet, but we’ve touched 40,000. So call it from 99 to 40,000. So that’s about a 40,000% rate of return over that long period of time. That’s about a 7.6% annual rate of return.

Wes Moss [00:24:46]:
And that’s without reinvesting dividends. Jeff Floyd. That’s just the math on the Dow. And he says, like, that, of course, should be a signal to everyday investors, all of us, the enduring power of America, never bet against it. And he’s really remain unshaken through the darkest times. Think about what he’s invested in. Now, granted, he was post depression, but we’ve gotten through the depression. World War one, World War two, cuban missile crisis, 911 attacks, 2008, global financial crisis, COVID pandemic.

Wes Moss [00:25:17]:
And Buffett has always believed, and we do here on money matters, in just this underlying strength and resilience of the economic system that we’re able to be part of. 2020 pandemic lockdowns. Buffett said, everyone’s screaming and running for the hills. I remember that when he said this, quote, he said, this is, quote, nothing can basically stop America now. He said it in a more charming 92 year old, 91 year old voice at the time. The american miracle, the american magic has always prevailed, and it will do so again. And those were comforting words back in a really scary, dark time. And Berkshire was essentially struggling shirt maker when he took it over.

Wes Moss [00:26:06]:
It was, if you go back to 1965, it was the merger of two companies. It was Hathaway, which made clothing in Berkshire that made cotton, and then it got transformed into a holding company that essentially he bought a bunch of stock in and then started creating what is today the Berkshire Hathaway that we all know. We don’t think of it as a company that makes shirts or textiles, but that was its original roots when Buffett essentially turned it into a holding company. Now, of course, it is so much more than that. It’s railroads, it’s Dairy Queen, it’s Geico. They have a giant stake in Apple, of course. And he, through his management of Berkshire Hathaway, over time, has just created phenomenal results, almost doubling the s and p 500 over that long period of time. And his quote, and I love the thought around this, and this is how we think of it, as the american army of productivity.

Wes Moss [00:27:00]:
We have this environment where we just get a little bit better, a little bit better every single day. And that’s a very powerful force. He says there’s been no incubator for unleashing human potential like the United States of America. More money matters straight ahead. Wes Moss, along with Jeff Lloyd in studio in Atlanta. I’m in studio in Michigan. It’s a little cooler up here, and that’s why we head north for the cooler weather. Excited, though, to get back to Atlanta at some point here soon to see you in person.

Wes Moss [00:27:34]:
Jeff LLOYD well, actually, we’re going to do a lot. We’re doing a show from Michigan next week, so you’re going to be here in studio to do that. I’m excited about that.

Jeff Lloyd [00:27:45]:
I’m excited, too. It’s actually going to be my first trip to Michigan.

Wes Moss [00:27:49]:
I’ve never been, never in your life. You’ve been to Michigan?

Jeff Lloyd [00:27:53]:
I’ve never even flown through it.

Wes Moss [00:27:56]:
It’s an underrated state. The whole northern midwest is underrated. But California gets all, the weather’s amazing in California. Try the Michigan summer, which you will. I’m excited for that. One of my discoveries, and this is nothing new, but I just discovered, which is the whole e bike thing here in Michigan. And I, because I’ve kind of taken for granted, I’ve got all these, I’ve got young kids. They’re all ride their bikes around and it’s fine, but when you have grandparents that are here and they’ve had hip replacements and they’ve had knee replacements, they’re not going to go on the same bike rides.

Wes Moss [00:28:36]:
And I was at a bike shop and I started asking about the e bike rentals, and it was the answer. It just hit me. And I know maybe that maybe if you’re listening, you’ve had these e bikes, but it’s the answer to have somebody who maybe has some issues be able to go on a bike ride with all the grandkids. And that’s an exciting discovery for me. However, along those same lines, we had this great analogy that came from Connor Miller, who, again, is often a co host here on the show, who was kind of struck by teaching his four year old daughter to ride a bike. And he just did that over the last couple of weeks. And he really thought to himself, wow, there’s so many parallels to being able to ride a bike or learn to ride a bike and doing it safely, doing it responsibly and investing. And I thought, you know, look, I agree.

Wes Moss [00:29:34]:
I thought it was a really good idea, a really good analogy to the world of investing and the journey that we go through because, and I’ve taught a lot of kids to ride bikes. Jeff Lloyd, you’ve probably, you’ve probably taught both of your kids, or I think you said Hunter, he just immediately was able to do. He didn’t even, you didn’t even need to teach him.

Jeff Lloyd [00:29:52]:
Yeah, I taught both my kids how to ride bikes. Grace Ann went first, or my oldest went first. She got it, but took a little more time and effort and maybe a few more, as we called them back then. Boo boos, boo boos, boo boos. And getting back up, pedaling and feeling it out for herself. My son, you’d mentioned earlier, a strider bike. And for those that don’t know what a strider bike, it’s like a little, it’s a little balance bike for little toddlers, little guys.

Wes Moss [00:30:21]:
Yeah.

Jeff Lloyd [00:30:22]:
And they don’t have training wheels or pedals. They just kind of balance and zoom around. He did that.

Wes Moss [00:30:28]:
Foot propelled.

Jeff Lloyd [00:30:28]:
Foot propelled, that’s right. And so when we got him a pedal bike with training wheels, we just took the training wheels off and off he went. There was really no teaching. It was pretty impressive.

Wes Moss [00:30:40]:
It is pretty cool. Okay, so we’ve all taught, we’ve taught our kids how to ride bikes. Right. And the journey, though, is, if you think about the adage, it’s the old adage, which it’s just like riding a bike, that only applies once you’ve already have the skill. You already have to know how to ride a bike, to be able to get back on and ride a bike. In fact, while being simple at times, there’s very little about learning to ride a bike. Maybe unless you had a strider bike, that is easy and there’s lots to be afraid of, which is similar to investing. So if you think about the steps you have to go through in order to be, for anybody to be able to just ride a bike or learn to ride a bike.

Wes Moss [00:31:21]:
One, you’ve got to set a clear direction and you’ve got to avoid distractions. Two, you’ve got to maintain at least some level of speed, some level of balance at the same time. And then finally, you have to make sure you’re protected the whole time. You’ve got to, you’ve got to be able to wear a helmet. And all of those things are applied directly to how we are at when it comes to investing. The, if you think about this, and this is anytime you’re teaching one of your kids to go forward, you’re saying, look at the tree down that way at the end of the parking lot, look at that and continue along the way and don’t get distracted right there. It’s don’t allow here in Michigan. They’re black squirrels that run back and forth across the road.

Wes Moss [00:32:01]:
Don’t get distracted by squirrels. Just continue on your path. Which is very much like what we go through in investing. And we’re in one of those major, call it squirrel distractions right now. It’s called the election. Here it is, 2024, and we’re worried about what could happen along the way. Now, let’s remember that we’re in a re election year, and that every single presidential re election year going back to 1944, markets have been higher or finished the year higher. And here we are in a year where the s and P 500 is up, call it approximately 17%.

Wes Moss [00:32:38]:
We need to also remember that partisan control, regardless of who takes office and who controls Congress and who controls the Senate, the House and the White House, almost every single combination, whether we like it or not, whether our party is in charge or not, it goes okay for equity markets. I think there’s no question that certain industries have either tailwinds or headwinds from regulation or government, call it government or industry focus, but broadly, the economy. And that’s what we care about, which really powers how markets will do and how earnings will do, almost any combination. We see success in the overall s and P 500. Democratic House, democratic president, averaging 9%. Republican Congress, republican president averaging twelve and a half percent. Republican Senate. Democratic House, republican president 13.7%.

Wes Moss [00:33:36]:
Democratic Senate, Republican House, democratic president, up 15% on, on average over time. This is going back 1933 to 2023. Three. So as nervous as we may get around politics or the distractions that can make investing really difficult, so we set a goal on the horizon, just like riding a bike, we’ve got to be able to learn to avoid distractions, just like riding a bike, and avoiding distractions like the election in the stock in markets. So next, just like investing, we’ve got to be able to maintain proper balance and speed. If you think about it, if you’re riding a bike, if you stop, what’s going to happen, going to fall. And you can see the frustration on a kid’s face as they’re learning to ride a bike. They get a little bit scared, they slow down.

Wes Moss [00:34:19]:
Next thing you know, they fall. They fall off. And that concept holds true in investing, too. We’ve got to have some sort of momentum and a diversified portfolio so that we have just enough growth or just enough growth in a portfolio that’s called, call that the speed and just enough income, called out the balance of to help keep you going on and on throughout the ride. This is how we try to ensure, and this is how we think philosophically about ensuring that a portfolio can produce enough cash flow to withstand any sort of environment. That’s what we refer to sleep well at night, or that the swan approach. Sometimes it’s difficult to do that. Sometimes we’re going uphill and then the wind is at our face.

Wes Moss [00:35:02]:
That’s a call that a bear market. Sometimes it’s easy. We’re going downhill. Call that a bull market. But since we never know exactly what environment is going to be handed to us, we’ve got to have a proper balance of growth oriented investments and income oriented investments tailored to your specific needs, not get distracted to help you get to where you want to go at any time. And I think that’s true in today’s environment as well. Interest rates are well above the levels that we’ve seen over the last couple call a decade or so. That’s the good side of the Fed, raising interest rates.

Wes Moss [00:35:38]:
And that has once again introduced choice to the question of do I own stocks or do I own bonds? For some context, if we go back to the year 20 2021, 50% to 60% of companies in the S and P 500 had higher income or higher dividend yields than the ten year treasury. Today, only about 9% of companies have a higher yield than the ten year treasury. And that’s because treasury yields have gone up. So we have a choice. If we’re looking for income, we can get it from stocks or we can get it from bonds. Whereas a few years ago, there was barely any interest being created or paid out by fixed income. So now we have a choice. And I think today it’s a great environment for investors to be able to have a balance between growth and income in a portfolio, particularly those headed towards retirement.

Wes Moss [00:36:32]:
Finally, we’ve got to be able to protect our most important asset. And this is whether you’re learning to ride a bike or you’re thinking about your retirement accounts over time. My wife is a former pediatric nurse, and she had a long career helping little kids. And a lot of what she dealt with were accidents. And a lot of what she dealt with were accidents where kids fell in some way and they hit their head. So no matter how many kids you see riding around a neighborhood without a helmet, she will, she will not allow our kids to go anywhere without a helmet. So when we’re riding a bike or learning to ride a bike, it is that it is absolutely necessary that we need to protect our most important asset, which is exactly what we need to do when it comes to investing. Once you approach retirement, your principal or your nest egg is the most valuable asset that you’re ever going to have financially.

Wes Moss [00:37:27]:
Howard Marks, the famous investor, once said, the risk that matters most is the risk of permanent loss of capital. So just like we’re in a helmet, we believe in going to great lengths to preserve that. So, for example, and this applies so much to what we’re seeing today, 40% of the S and P 500 is made up of top the top ten stocks. Over 77% of the return so far in 2024 for the S and P 500 has been from the top ten stocks. And there’s this temptation right now to be undiversified because there’s just a handful of really big winners. Well, I think there’s probably real opportunity in the other 490 companies that are in the S and P 500. And as investors, we risk permanent loss of principle by investing too much in too few companies that may not be able to recover after a big sell off. That’s where diversification comes in.

Wes Moss [00:38:25]:
That’s where a diversified basket of dividend, growing companies, high quality bonds and investment grade bonds all together in a highly diversified way, doesn’t protect you necessarily against all fluctuation, but it should protect you against a loss that you can’t recover from. So to me, maybe diversification is the helmet we’ve all just got to wear. Putting it all together. Imagine learning to ride a bike again from scratch. Imagine being five years old doing it. It’s not easy. We’ve got to set a direction, avoid distractions, focus on our goals, always maintain some sort of balance and speed growth income, keep our momentum, never stop. And finally, protect your most important asset at all times in investing.

Wes Moss [00:39:17]:
That’s diversification 101. Jeff, I am so fascinated by this call it housing conundrum. Housing prices are still firm despite rising inventories, and it’s just so many cross currents happening within the housing market. Every time we think we’re going to get some relief, I’m not so sure we’re going to get a whole lot of relief, at least when it comes to prices. Maybe when it comes to rates, but probably not prices anytime soon. There was an interesting study that I read this week that showed that the difference between existing housing inventory and new home inventory. Remember, the equilibrium is about a six month inventory worth of houses. Should take about six months for houses to clear at any given time on a rolling basis, and it’s been much lower than that.

Wes Moss [00:40:07]:
Today we’re at only a little over four months for the inventory. So that’s still low historically, but it’s only 3.7 months for existing homes. What’s strange, because these numbers should be similar, is that it’s over nine. It’s almost nine and a half months worth of inventory for newly built homes. So builders are out there doing their job, they’re building, and they’re able to buy down rates a little bit to make it easier for homeowners to buy. But what’s happening is that you’re seeing anything in the lower price range. So $100,000 to the $500,000 range, even though there’s lots of building in that range, they’re getting gobbled up immediately. So you only have a 2.7 months of supply in the 250 and lower.

Wes Moss [00:40:54]:
And for homes in the 250 to 500 range, you only have a three month supply. So there’s so much demand for that area or that price point. We’re still seeing very firm housing prices.

Jeff Lloyd [00:41:07]:
So, yeah, the more affordable houses, like you said, are getting gobbled up and.

Wes Moss [00:41:12]:
Are selling quicker immediately. Now, the million plus, which is the million plus market, that’s still only a 4.2 months worth of supply there. So the way I see what I see happening, and this goes back to the inflation report this week, inflation came in cooler than expected. It means that the Federal Reserve is more likely. The probability now has gone up that they’re going to lower rates in September, and a very high probability that they’re going to lower rates by the end of the year. You’re going to see, then interest rates come down, and then subsequently mortgage rates coming down would be great news for those who are still looking to go buy a home. I could see this great unlocking of the housing market when you see lower rates. If we go from the seven range down to the six or even slightly lower than six, I think you’re going to see a lot of homeowners say, okay, now I can put my home on the market and I can go look for something else.

Wes Moss [00:42:09]:
Ironically, even though we might get a whole bunch more supply now, you’ve got all these people that haven’t been able to buy over the last couple of years, so we have this pent up demand, and they’ll say, well, now that I have lower interest rates, I’m going to go back to the housing market. So as much as I’d love to think home prices would come down, you have too many supply demand cross currents, which kind of makes this fascinating. And in the end, even if you start to see some movement in the housing market. Probably not going to see lower home prices anytime soon. With that, it’s time to wrap it up here. Jeff Lloyd thank you for being here today.

Jeff Lloyd [00:42:46]:
Thanks for having me back. I think I might go on a little afternoon bike ride.

Wes Moss [00:42:50]:
You can find me and Jeff Lloyd. It’s easy to do so and the money matters team@yourwealth.com that’s y o u ryourwealth.com and have a wonderful rest of your day.

Mallory Boggs [00:43:08]:
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Mallory Boggs [00:43:56]:
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